Writing a contract is easier than you think

Writing a contract is easier than business owners think

Law is a theatrical profession. Canadian courts put on quite a show. Lawyers wear flowing robes and greet judges with snappy bows. And even in the most contentious of proceedings, lawyers refer to one another as “my friend” while in the presence of a judge.

These mysterious, archaic and magisterial traditions create the impression that the legal profession is a closed society best left to those in the flowing robes. This formality fosters a common misconception that a contract isn’t a contract unless it’s a very official looking document that contains a dramatic seal and a lot of flowery 19th century words like “heretofore” or “whereas.”

Nothing could be further from the truth. The common law rules for contracts are very simple. And as we’ll discover, contracts do not require flowery, convoluted legalese.

Contracts are the simplest of legal transactions. The common law asks only three things of a contract: an offer, an acceptance, and some swap of value or what lawyers call “consideration.” Meet those three conditions, and you have a legally enforceable deal.

Apart for some specific exemptions, such as deals involving land, you don’t even need to put anything in writing. Oral deals are just as legally valid as those written on paper. And when it comes to those written on paper, the important things are the intention and behavior of the parties, not the eloquence or artfulness of the language.

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Let’s say you have a bunch of handwritten words, some illegible, hastily scribbled on a single piece of lined paper. The words were jotted down during a meeting in a gravel pit somewhere in British Columbia. This document is as far as you can get from the legal finery you might expect to emerge from some swishy Bay Street board room. But the legal validity of the document I’ve just described was upheld in a unanimous, three-judge decision of the B.C. Court of Appeal.

The case is called Hoban Construction Ltd. v. Alexander and it concerns a contract that was prepared by three business partners. Two agreed to sell their shares in a wood mill to the third. The price for the sale was pegged at $1.5-million. The parties scribbled down the basic terms of the agreement and signed the deal. Multiple witnesses were present.

The court had lots of choice words for the raw nature of the agreement; it was “inelegantly and inartistically drafted,” the appellate court said. It also lacked several basic terms that most lawyers would have included. Indeed, I would suggest that a more professional document might have prevented some or all of the many years’ worth of litigation that followed. But the legal system doesn’t demand perfection. It asks only for the bare minimums of offer, acceptance and consideration. Those were present, so the deal was valid.

To be sure, precision certainly helps prevent or sort out any problems that might come with the interpretation of a deal. If such precision is lacking and the situation winds up in court, judges will look at the conduct of the parties, and ask whether a reasonable person would think that the behavior demonstrates consent to the deal. If some important terms are missing from a written agreement, judges will infer the existence of those missing terms to make the deal work. They’re supposed to focus on the substance of the deal, not archaic formalities.

Everyone tells you to get business agreements in writing. That’s excellent advice. Just keep in mind that written deals need not be filled with highfalutin language. A deal is a deal. Lawyers can devise terms that might fine tune some meanings and prevent unnecessary and costly litigation down the road. But you don’t need to be wearing one of those black flowing robes to draft a legally binding agreement.

Drew Hasselback, Legal Post editor, is a lawyer called to the Bar of Ontario. His Legal Tender column appears monthly in FP Entrepreneur. He can be reached at dhasselback@nationalpost.com